How Much Money Should I Put Down?
I have a HELOC on my primary residnece and I am looking to buy some invesment properties. I understand the numbers, cash flow, tax savings, appreciation. I am looking to buy in the range of 175K to 220k range. Rents typically are 1200 to 1500. Prices are high relative to rents so my cap rates are very low.
I continue to get mixed reviews on how much a person should put down on a property. Do you buy 4 or 5 propeties with 5% or less down or do you buy 1 or 2 properties and put 20% down?
You might get some benefit from reading my article on equity mgmt, you get no interest earned from money you put down, leverage defined is the ability to control a large asset with a small asset.
http://www.thecreativeinvestor.com/residential/Article862-Dont_Pay_Off_That_Property.html
GL
[addsig]
My only apprehension with the article is if you spread your self so thin and use up all your $ and have a lot of property what happens if the perfect storm hits and you have vacancies in 4 out of 5 props? You can go down quick if you are making 4 mtgs pmts with no income. Do you make sure and leave a certain safety net , say 6 months of pmts in reserve?
Absolutely, If you are a fulltime investor you want to watch yourself or you can easily get a lot of units and manage them yourself or hire someone and still ahve a fulltime job (I do) You have to have the right insurance policies too.
Example, we had a hurricane take a tree and knock down half the roof of a place we have. Having good insurance in place paid us for loss of use the full amount we would have been getting were it rented (that was with some negotiating mind you)
I do not condone cutting yourself to the bone with leverage. But, pulling out equity and using it toward real estate or something liquid that earns interest is the smarter way to manage money. You have no security in a house with a lot of equity because if you get in trouble, you will not be able to get a loan on that property. And think about this, would a bank rather foreclose on a house that has lots of equity or little?
[addsig]
Thanks for the advice.